Over the past few months, I have held some presentations on FIRE and investing in general.
I often find that people have many reservations about investing:
- Why should I Invest? “I will rather spend the money today”
- What should I invest in? “It seems so complex”
- How do I invest? “I don’t even know where to start”
- How much should I invest? “I don’t have a lot of money”
- How do I invest sustainably? “Capitalism will never be about ‘doing good'”
These reservations are often reasons people don’t get started with investing.
If you don’t invest, you lose precious returns since investing early means that compound interest/returns will work in your favor the longer you invest.
Source: The Motley Fool
For illustrative purposes, the red line is what can happen to your net worth when you invest over time when compounding interest/returns work in your favor. The blue line is if you just save up in the current near-zero or negative interest rate environment (i.e. your net worth only increases with what you save).
You see why it makes sense to get started on the red line journey instead of staying on the blue line journey?
That’s why my new mantra is: just get started investing!
Why you should just get started investing
By getting started you break down the mental barrier of the complexity of investing.
You quickly find out how easy it is to get started and then the ball starts rolling.
Several of my friends who didn’t know a single thing about investing are now investing small amounts every single month (of course, they are fully aware of the risk and only invest what they can afford to lose).
They see the markets go up and down, and they start to get a feel for how little time it requires and what the returns can be over time. They also learn to stomach the ups and downs, which is an important skill.
I always suggest to start out with small amounts to get a feel for it.
As soon as you get more comfortable investing, you can increase the amounts and perhaps also increase the complexity.
If you still have reservations, let me address them one by one:
Why should I invest?
This one is the hardest to give you a good answer to.
You need to find your own purpose with investing or even your purpose in life – I’m sure more money will not be a disadvantage in achieving it.
What should I invest in?
There are tons of things you can invest in, but since it’s all about getting started we want it to be easy.
I prefer investing in passive stock index funds since it’s simple, easy to get started and gives good returns over time.
If you live in the US (or elsewhere), I would set up an account with Vanguard or Blackrock iShares to invest in a global index fund/ETF. Many people prefer VTSAX with Vanguard.
If you live in Denmark (as I do), I recommend setting up a “Månedsopsparing” with Nordnet and invest in a Danish “investeringsforening” (ETF). You will not pay a transaction fee, and you can find a decent global index fund there (e.g. “Sparindex INDEX Globale Akt Min Risk KL”). You can get started for as little 500 DKK (75 USD) per month.
I am not affiliated with any of these products by the way, and you should always make your own research before investing.
How do I invest?
It’s as simple as setting up an account with a broker and transferring some money. Most of the sites (or financial blogs) will have tutorials for this, so I won’t go into detail as it varies from country to country. In Denmark, I prefer Nordnet or Saxo Investor, but in the US you could create an account directly with Vanguard.
All I can promise you is that it’s usually very easy to get started and is similar to signing up for other websites online.
Once you transfer a small amount of money, test out the platform, invest in an index fund/ETF and see what happens. You might make some investment mistakes initially, but you’ll quickly learn how it works.
How much should I invest?
You don’t need to be a millionaire to invest. You don’t even need to earn above the median wage.
Everyone can get started investing, and this is why it’s so important to just get started.
Once you have invested the first $3,000 in Vanguard (which I know is a sum), the following investments can be as low as $1 per investment. Using some brokers, there’s no minimum investment amount. In Denmark, there’s usually no limit except if you use “Månedsopsparing” that comes with free transactions where the minimum is 500 DKK (75 USD).
The only time you shouldn’t invest is if you need every dollar you earn each month to stay alive 🙂
How do I invest sustainably?
This is one of the themes I have focused a lot on lately.
I believe we all have a responsibility to invest sustainably.
Luckily, more and more index funds that are investing sustainably are being created these years.
You should always check the fund’s screening methods. Some selections are done based on surveys and some are based on thorough research, site visits, etc.
You might need to invest in active index funds to get the very best screenings, but some passive funds are also starting to follow. In the US, an example could be Vanguard’s VSGX fund that invests internationally in 5,000 companies excluding those that do not meet certain standards of U.N. global compact principles and companies that do not meet diversity criteria. In Denmark, an example could be “Sydinvest Morningstar Global Markets Sustainability Leaders KL“.
So the question is now: will you start investing?
Remember that compound interest means you have no time to lose 🙂